One of the Cardinal Principles of Trade is that you do not Export Taxes. Therefore, all the Economies generally levy no Tax on Export of Goods and Services and rather extend some incentive to compensate for the taxes suffered by inputs and input services. Special Economic Zones are considered as Territories beyond Customs Frontiers and therefore supplies to units located in SEZ are treated as Deemed Export. Therefore, provisions have been made to extend benefits, similar to benefits available to Exports, for the supplies to the units Located in SEZ.
A major share of Modern Economy is occupied by Services. Services, being intangible, elaborate provisions have been made to determine the place of performance of such services to determine its tax jurisdiction, Export or import of Service etc. For example, if a Foreign Company organises a Conference in a Hotel situated in Delhi, then the same does not qualify as Export of Service, as defined under Section 2(6) of the IGST Act, 2017. Because as per the said definition, one of the conditions is that the place of supply of such service is outside India. As per Section 13 (5) of the Act, ibid, the place of supply of service by way of organisation of Conference etc. shall be the place where the event is actually held. As the Conference is held in Delhi, no Export incentive is available, though the Conference is organized by a Foreign Entity and payment is made in convertible foreign exchange. Rather, CGST+ SGST is payable. Logically, if such a Conference is organized by a unit located in SEZ in the said Hotel then the same should also be taxed similarly.
However, CBIC in Circular No. 48/22/2018-GST has clarified that Services like Hotel Accommodation, Event Management, Conferencing etc. supplied to SEZ Units and Developers are covered under the definition of “Zero Rated Supply” as contained in Section 16 of the IGST Act, 2017. The above Circular have highlighted some interesting irrationality in GST Statutory provisions.
The above clarification have been issued to override Advance Ruling given by AAR Karnataka in Re: Gogte Infrastructure Development Corporation Limited, 2018 (13) G.S.T.L. 114 (A.A.R. – GST). The Hon’ble Authority ruled that the place of supply of Hotel Accommodation and Restaurant Services provided to SEZ Units is the location of such Hotel / Restaurant and hence cannot be considered as consumed within SEZ.
The CBIC, vide the above referred circular, have stated that as per Section 16(1) of the IGST Act ‘Zero Rated Supplies’ means supplies of Goods and Services to SEZ Unit and SEZ developers and therefore, the benefits of Zero Rated supply would be available to Supplier. Thus all the services supplied to SEZ qualify as Zero Rated Supply, being the statutory provisions for determining Place of Supply have no application in case of Services Supplied to SEZ. Now, the position is that if a particular service provided to a foreign entity is not considered as supplied outside, then also such Services if provided to a SEZ Unit will be treated as ‘Zero Rated Supply’, which is illogical and irrational.
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